Does the Starbucks App Stand a Chance Against Apple Pay?

It’s been almost two weekssince Apple announced its long-awaited entry into payments with Apple Pay. Forpayments geeks, which includes everyone at Mercator Advisory Group, this wasour Comic-Con. We’ve been busy these past couple of weeks putting outnumerousthinkpiecesonwhat this development means for variousstakeholders within the payments ecosystem. We have also had a number of callswith clients and other industry stakeholders, all keen to understand where theystand if Apple succeeds in driving a once in a generation change in the waypeople pay for things. One of the questions I have been wrestling with sincethe Apple’s September 9 keynote is what Apple Pay means for retailers who areinvesting in their own wallet apps that combine loyalty and payments?

This was the subject of mymost recent report, where I used the example of the immensely successfulStarbucks app to ask some pretty basic questions: Why invest in a loyaltyprogram? Can loyalty membership activity and mobile payments adoption bemutually reinforcing? What does an “omnichannel” experience really mean, andwhat mobile technologies can help retailers build it?

Rather fortuitously, I, along with my colleaguesTim Sloane, VP of Payments Innovation and Ken Paterson, VP of Research, was recently invited to the offices ofPaydiant, a company whose fortunes are closely tied to the way themobile payments sweepstakes play out. Last week, Chris Gardner, co-founder ofPaydiant, showed us around his company’s sleek new offices in Newton,Massachusetts. Paydiant builds white-label mobile wallets. Two of its mostprominent customers are Subway and the soon-to-be-launched MCX wallet, which isa joint effort by a national coalition of retailers. What is unique aboutPaydiant is that it is truly agnostic when it comes to technology and platform.Whether a merchant wants to build a pure Android wallet that leverages NearField Communication (NFC) or a QR Code-based solution that works on iOS,Paydiant will deliver. Ditto for Bluetooth Low Energy (BLE) and integrationwith existing loyalty program and point-of-sale architecture. Paydiant’sbusiness model is built on platform usage and revenue-sharing agreements.

Paydiant gets paid only ifconsumers actually use the merchant’s app to make purchases and redeem offers.By eschewing the requirement that customers utilize a Paydiant-branded mobilewallet, the company has sidestepped the need to expend valuable marketingdollars to establish a consumer brand that competes with the likes of, say,Venmo. Paydiant has clearly positioned itself better than many others in themarket to weather the fast-changing winds of consumer preference in thetumultuous mobile payments journey. With close to $40 million in funding frominvestors over three rounds, it seems to be well funded enough, in addition tobeing nimble enough, to do so.

The coolest part of the visit was without a doubtseeing next-generation payments technologies in action in Paydiant’s demo room,built to mimic a restaurant, charmingly named “Mom’s Deli.” There we saw howPaydiant’s mobile wallet app (which closely matched the Mom’s Deli colors andbranding, showing a great eye for detail) could complete transactions andredeem coupons via QR Code and BLE. Unfortunately, our host Chris Gardner’sphone was an iPhone 5, so we couldn’t see NFC in action (though even the iPhone6 will not allow a third-party app to access its NFC antenna). Chris made theentirely sensible observation here that Paydiant’s BLE implementation allowedfor a greater degree of flexibility in loyalty and rewards integration. UnlikeNFC payments, Paydiant’s implementation of BLE does not involve tokenizedpayment credentials actually being communicated from the device to the POS overBluetooth. Instead, the Bluetooth handshake only serves to authorize thosecredentials to be accessed from the cloud in order to complete the payment.Chris maintained that this makes for a much faster and more seamless“last-inch” experience compared to NFC. It also allows for better integrationof loyalty rewards and coupons. The future of retail is “post-POS” arguedChris.